News: October 2015 Water Project Status

16 Oct News: October 2015 Water Project Status

10.16.15 — Following the United States Bureau of Land Management’s (BLM) issuance of a guidance determination that a water pipeline for human consumption was not within the scope of the Arizona & California Railroad right-of-way, the Company is undertaking the following actions.

Obtaining further clarification on BLM’s reasoning. We, as well as many others, believe the determination is contrary to federal law and policy, including the Nov 4, 2011 US Department of the Interior Solicitor’s Opinion, and should be rescinded or modified to authorize the whole of the Project’s activities to proceed as planned. Cadiz has written a letter to BLM’s National Director Neil Kornze about the errors in the determination and requesting that he overturn it. We are grateful for the support of members of Congress concerned about the determination and are informed that a letter has been sent to the BLM requesting documentation behind the determination. A response is expected by the end of October 2015. We are further informed that Congressional representatives are attempting to schedule a meeting with Mr. Kornze to obtain a better understanding of the determination, as well as potential grounds for modification or reversal.

Oppose the continuation of the Feinstein Rider. Annually, Senator Dianne Feinstein (D-CA) has attached a “rider” to the federal budget bill consisting of two paragraphs. The first required a determination by the Interior Secretary that our proposed use is within the scope of the ARZC right-of-way. The second prohibits the BLM from reviewing a right-of-way application in relation to any proposal to import and “store water underground for the purpose of export.” This is a description of the Project’s Phase 2. We disagree with the use of this tactic by Senator Feinstein and will work with our Representatives to seek opposition to any effort to continue, change or expand the scope of the rider. Since it is an annual measure, if the rider is not adopted by Congress in the next Appropriations bill it will expire.

Evaluate filing a new right-of-way application for a pipeline that will convey conserved water from Cadiz to the CRA. In collaboration with the Santa Margarita Water District (SMWD), the Company is evaluating whether to file an application for a federal right-of-way for the limited purpose of conveying conserved water. The Company would not seek a right-of-way approval for our groundwater storage (Phase 2) proposal at this time. This evaluation by BLM should be limited to a permit to install a water pipeline to deliver water for human consumption. Several routes are under evaluation:

(a) Existing Arizona & California right-of-way route. Existing environmental documentation compiled in connection with Project’s environmental review under the California Environmental Quality Act (CEQA) is available for use by the federal government in conducting any evaluation of impacts under the National Environmental Policy Act (NEPA). We believe CEQA is more stringent than NEPA and that the analysis conducted under CEQA should be incorporated into any NEPA document. Further, review should be reasonably confined to the activities that would be permitted by the BLM; that is, the conveyance of conserved water in a pipeline within an active railroad right-of-way.

(b) BLM Previously Approved Route. In 2002 BLM approved a right-of-way for a pipeline that would move water from Cadiz to the CRA across federal land. This route was shorter by 7 miles than the railroad route and involved a larger diameter pipeline across undisturbed federal land. The route was also analyzed as an alternative conveyance route under CEQA. We expect BLM would require an update to the earlier analysis and additional CEQA review for this route might also be required. But we believe given their history of supporting this route, it is a viable alternative. BLM’s review and any additional CEQA work for this route should be limited to the conveyance of conserved water in a pipeline.

(c) 96-Mile Cadiz Northern Pipeline. We are also evaluating whether to file a request to add the conveyance of conserved water for municipal use to the existing right-of-way for the existing 96-mile pipeline we own that was previously used for the conveyance of hydrocarbons. The conveyance of water in lieu of hydrocarbons within an existing pipeline is not anticipated to have any significant impacts and we therefore believe this is also a viable alternative. Since the pipeline is already in ground, the primary but limited disturbance would be the location of two new pump stations within the existing right-of-way. As a result we expect environmental review would be limited.

Evaluate the filing of an amendment to the existing right-of-way for the Cadiz Northern Pipeline. Conveyance of water for agricultural use is not subject to the Feinstein rider and its prohibition on BLM evaluation. Therefore, we are also presently evaluating adding the conveyance and import of water from northern sources of supply into Cadiz for agricultural use as a compliment to 3(a) and 3(b) above, or as an independent action. Securing water through this pipeline would allow the Company to maintain and potentially expand its existing farming operations while the conservation project moves ahead.

Evaluate administrative and judicial remedies. The Company can also simultaneously pursue litigation to clarify the rights of the Company and ARZC in its right-of-way and establish that the Project actions are within the scope of the right-of-way. Other administrative and legal remedies may also be available to firmly establish ARZC’s right to grant access to the Company for the use of the ROW.

These various options have different time horizons. We believe if we are to secure a near-term reversal of the determination we will be in a position to construct the pipeline in 2016. If we must pursue a legal remedy or additional environmental review, then pipeline construction could be delayed. In this scenario we would plan to continue to build the wellfield and utilize it for agricultural development until the pipeline is permitted and constructed.

As we carry out the best strategy to implement the Project in the most expeditious manner, we continue to be in good financial standing. We are in compliance with all debt covenants and have no payments due until March 2016. We also have cash on hand to implement the business strategy. We are confident we can refinance and extend our debt covenants prior to their due date if necessary.

Attached is a Frequently Asked Questions document with more information about the BLM decision for reference. To learn more about the Project visit www.cadizwaterproject.com